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BACKGROUND

 

TAX TIPS & NEWSLETTERS

 

ANTI - FRAUD

 

LINKS

"There's a sucker born every minute" - P.T. Barnum

As you read this, the range of frauds being perpetrated, range from the pensioner who is being defrauded of $10.00 by the scammer operating the phony children's camp, to large frauds such as the United Nations who are being defrauded of millions of dollars by people in countries where the UN is attempting to assist that county. No country, town or city is immune from fraudsters. No organization, large (Enron) or small, can be excluded from the effects of fraud.

Fraud can be launched from within an organization (e.g.: employee fraud) or can be perpetrated from outside the organization (e.g.: supplier fraud).

Fraud can also be targeted against members of the public, in almost unlimited ways. With the advent of e-mail, the instances of possible fraud have grown dramatically.

Following is a copy of an e-mail received recently, which is a version of the "Nigerian scam", one of the most prolific e-mail frauds. Rumour has it that this type of scam accounts for a large percentage of the country's revenue!

Click here to read e-mail -

Click here to go to a web-site discussing the "Nigerian scam"

Click here for the RCMP's web-site on the "Nigerian scam"

Do a search on the WWW for "Nigerian scam" and spend some time following the results.

This type of scam has been around for years - and for good reason - people still think they are going to "earn" millions of dollars for just "letting someone use their bank account". Of course, what really happens is that once you give out your banking information, you will notice that your bank balance has changed - unfortunately, the balance will have decreased as the thieves will attempt to clean out your bank account. Even though there have been, and are warnings (not to mention, "common-sense") about giving out confidential information, these scams persist because people continue to hand out their confidential bank information to complete strangers, simply because they received an e-mail message that will "make them rich". Another type of e-mail scam is known as "phishing" where you will receive an e-mail from the "security department" of a bank, credit card company or on-line payment transfer company, stating that your confidential information has to be updated. The perpetrator will then give you a web link to go to to "update" your information, such as bank account or credit card information. Unfortunately, the web site you are sent to belongs to the fraudster who uses your confidential information to make purchases using your money or credit. Remember that no bank,credit card company or on-line payment centre will request such information from you via e-mail. If you receive such an e-mail request, simply hit the DEL key on your e-mail software to get rid of this message and report it to your bank and local police department.

It seems that if people are presented with a plan to make higher than usual interest rates or large sums of money for little or no work, they will "invest" in such schemes. You usually have a better chance of making such high returns on your investment, if you take the cash and visit your nearest casino! One scheme that I am well aware of was run by an "investor" who promised people a 45% return on their investment within six months. All of those who invested are still waiting (after 10 years) for the return of their original investment. Unfortunately, many were retirees who took a 2nd mortgage on their home to fund the investment and are now having a very unhappy retirement, while the fraudster is improving his golf game in the southern US.

Of course, the "home improvement" scam has been around for years, where a representative of a company will knock on your door as they are "in the neighbourhood" doing work for one of your neighbours and can give you a "deal" on some work at your house. Don't fall for it! Don't give any company an upfront deposit for any work before you check them out through your local BBB, Chamber of Commerce and other such agencies. The best recommendation you can get for any company is to talk to some of your friends who have used the same company in the past and who have been happy with their service and products.

Another type of fraud perpetrated on the public is the selling of "franchises" that promise large rewards for little effort. One such type occurred in an Eastern Ontario city recently, where a company was selling jewelry kiosks, that promised to make you rich. The company would supply the kiosk, the jewelry and give you prime mall locations to sell this "stuff" in and make your fortune. All you had to do was send them a cheque and wait for this "priceless" opportunity to arrive at your door. What really happened was that you "might" receive something from the company (or maybe nothing) but usually the product was "junk jewelry" - hardly worth the postage. What certainly happened was that your cheque was cashed as soon as it arrived at the company. So, you're now out some hard-earned cash (usually at least $20,000) and you have little or nothing to show for it! Of course, you can contact the local police department or the RCMP, but usually they are so busy solving other larger dollar crimes that they do not have the time nor the manpower to assist you. If you attempt to get your funds back through legal means, you will probably find that the company has gone bankrupt or left town. The case mentioned above is still in the Court system, so I can't mention names, but the police are aware of millions of dollars obtained through this scam from investors across North America. I'm sure there are many millions more we don't know about, simply because those who were duped are too embarrassed to come forward.

To see what does happen to the fraud artist once they are tried and convicted, see the following March 3, 2005 article from the Kingston Whig-Standard © HERE. Obviously, the laws regarding sentencing for those convicted of fraud have to be strengthened so that the punishment fits the crime.

Charity fraud has also grown in recent years, where you are contacted (by the local police or fire association to donate funds to assist them in sending "underprivileged" children to hockey games - the circus or a camp. Unfortunately, the only people assisted by your generosity to these "charities" are the perpetrators of the fraud, who take your money. Recently, I received a telephone solicitation from (supposedly) the local police association to help their fund-raising by advertising in their printed program. As I was talking to the charity "representative" (who assured me that my donation would help underprivileged kids) I had a detective from the local police sitting across the desk from me in the office and he assured me that this was not a legitimate organization. As I started asking the caller pertinent questions - "Where exactly is your office?" - "Whose the president of the association" - he seemed to figure out that I really didn't believe his pitch and hung up the phone. There are many worthwhile charities out there, whose fund-raising efforts are being hurt by these scam artists. If you receive a solicitation, check out the supposed charity by contacting your local BBB, Chamber of Commerce or the police. Limit your donations to "known" charities. Some fraudulent "charities" use names very similar to well-known, honest charities - so be careful who you are handing your money over to.

The Canada Revenue Agency (CRA) maintains a listing of Canadian "charities" whose registration has been revoked. They also maintain a repository of charitable financial information filed annually by charities, whose registration is still valid. Click HERE to go to their web site.Click HERE for copies of articles published in the Toronto Star showing some of the larger charity frauds uncovered by them.

Remember- you worked for your money. Don't give it away to scam artists!

CORPORATE FRAUD
Anyone who knows basic accounting and auditing, is aware of the phrase "separation of duties". This refers to the fact that no one employee should be left in a position to both perpetrate errors and to conceal errors or irregularities in the normal course of his\her duties. An example - the person who has control over the company cheques may decide to give themselves an "unauthorized raise" by stealing a company cheque and forging the signature of a signing officer. If that same employee is in charge of maintaining the company's cheque register and doing the bank reconciliation, he may be able to suppress the recording of the fraudulent cheques and prevent the discovery of the fraud which would normally be uncovered through the bank reconciliation. Control of such irregularities involves eliminating the opportunity for concealment - by assigning the bank reconciliation duties to another employee. Obviously, collusion between the two employees would circumvent this control. There have been some really "dumb" frauds carried out by employees, which are discovered fairly quickly - because of basic controls, such as the separation of duties. The smaller the company, the more management has to oversee the basic functions, such as reviewing expense invoices before signing cheques, reviewing the number and amounts of the payroll cheques to ensure that all cheques are going to actual employees and that the amounts being paid are reasonable, reviewing the monthly listing of customer accounts receivable to ensure that cheques received for payment of these accounts are being credited to the bank of the corporation and to the correct customer accounts and, reviewing purchases made on corporate credit cards to ensure they are for the benefit of the company. These do not have to be done monthly but should be carried out fairly often and on a
random basis.

Every business should have a corporate fraud policy, and that policy should be mandatory reading for all employees. The policy should be posted for all staff to see. Of course, management should practice what it preaches. There is not much sense in having a fraud policy for employees when management cheats by expensing personal items through the company and "laughs off" the whole idea. Management must set an example. Retain a knowledgeable fraud consultant to assist your company in drafting its fraud policy. If an employee is caught having committed a fraud against the organization, then prosecute that individual! If you don't, other employees will see that there are little or no consequences for their fraudulent actions against the organization.

Large corporate frauds such as Enron, Worldcom and others are started and carried out by senior management, who have the control to conceal these schemes from the owners or directors and the external accountants or auditors. These are obviously more difficult to detect, but as the management of the above companies now know, they are not impossible to detect.

Almost every corporate fraud perpetrated by employees will succeed for a period of time because the proper accounting controls are either not in place or are being circumvented. A thorough analysis by a qualified accountant (CA in Canada; CPA in the United States) will ensure that the controls are adequate and functioning. Consult a qualified accountant with experience in fraud investigations to ensure that your company has an adequate fraud policy and the necessary controls in place to reduce the chances of your organization being the victim of fraudulent activities.